Predictably Irrational (Book Review)

On May 20, 2013

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You still think people make rational decisions? A wide variety of research has already proved that emotions are involved in our decision-making systems. So why do smart people make irrational decisions every day? Dan Ariely (Professor of Psychology at Duke University) answers this in Predictably Irrational: The Hidden Forces our Decisions (a New York Times bestseller published by HarperColli Publishers in 2008), a great book with an original look at why we all make illogical decisions. The book presents many ways people are wired or conditioned to be irrational, usually without even being aware of it and how we can “fix” at least some of this irrationality by being aware of how it can arise and then making a steady effort to override it or compensate for it.
Ariely describes the ways in which people frequently regard their environment in terms of their relation to others and they compare things that are similar, as this is the way that the human brain is wired. For example, if given the following options for a honeymoon – Paris (with free breakfast), Rome (with free breakfast), and Rome (no breakfast included), most people would probably choose Rome with the free breakfast. The rationale is that it is easier to compare the two options for Rome than it is to compare Paris and Rome. Ariely also explains the role of the decoy effect in the decision process. The decoy effect is the phenomenon whereby consumers will tend to have a specific change in preference between two options when also presented with a third option that is asymmetrically dominated. This effect is the “secret agent” in many decisions. In the example with the honeymoon options, Rome without free breakfast is the decoy. (It makes Rome with breakfast look superior to Rome without breakfast. Comparing Rome and Paris is difficult, so the easy comparison of Rome makes it more likely to choose Rome over Paris.) It makes Paris look inferior when compared to Rome with the free breakfast. Relativity helps people make decisions but it can also make them miserable.

In another chapter, Ariely and his colleagues conducted a series of experiments to determine whether previous knowledge can change an actual sensory experience. One of the experiments was conducted in one of the MIT’s pubs. Students visiting the pub tasted two types of beer: Budweiser and the MIT Brew (which contains balsamic vinegar). In the “blind test” the majority preferred the altered brew, but when they were told in advance that it was vinegar-laced, they chose the original Budweiser (this test is similar to the Pepsi challenge study conducted by Samuel McClure and Read Montague). Another group of students was made aware of the vinegar content immediately after tasting both kinds of drinks. However, they still reported that they preferred it, proving that knowledge after the experience does not affect our sensory perceptions. Ariely concludes that “expectations can influence nearly every aspect in one’s life”. He presents an argument that expectations can override our senses, partially blinding us from the truth.Predictably Irrationalis an enjoyable read, and those who followed the author’s recent course A Beginner’s Guide to Irrational Behavior on Coursera will remember many details from the weekly presentations there. Ariely grabs out interest by presenting concepts using many experiments (design, results and interpretations) in layman terms, without boring the reader by getting into details which are more appropriate for journal papers. Most of the experiments conducted by Professor Ariely used US college students. I especially enjoyed reading the chapters about “The Cost of Zero Cost” (why we often pay too much when we pay nothing and how this concept applies to time) and “The Cost of Social Norms” (why we are happy to do things, but not when we are paid to do them). The author explains some of the factors that influence our decision making like: the influence of emotions; choosing between options; the pitfalls of procrastination; how we cheat when we make decisions; the lure of free offers. Discussing the types of dishonesty, Professor Ariely provides insights into human behavior, in many cases backed by experiments that have tested his hypotheses.This book is primarily focused on behavioral economics and would interest marketers, managers and human behavior researchers, but because we are all decision-makers and our decisions impact others, this is a great read to anyone. This is an excellent, insightful book written in an entertaining style and I highly recommend it to anyone interested in the psychology of decision making or in making better decisions.